Deals worth $1.3tn were struck in the first quarter of 2021 in a year-to-date record driven by a number of mega deals and the surge in SPACs

Deals worth $1.3 trillion were struck in the three months to March 30, even as the global economy continued to suffer from the impact of the pandemic, although the number of deals was up only 6% from a year ago, according to data provider Refinitiv.

Dealmakers said a boom in the stock market and low borrowing costs – driven by the Federal Reserve's loose monetary policies – emboldened companies, private equity funds and blank-cheque acquisition firms to pursue their dream deals.

Deal-making surged in most sectors of the economy, especially the technology industry, which is positioning for big changes in cloud computing and collaboration spurred on by the shift to remote working.

The sector's previous heady levels was witnessed in 1980 during the dotcom boom at the turn of the millennium, said Refinitiv.

The data underscores the scale of the rebound in deal-making activity after it plummeted a year ago in the early days of the pandemic.

US LEADS

Around half the deal activity came from United States where volumes were up 160% year on year at $654.1 billion. The asia Pacific region, excluding central Asia, was up 44.9% at $206.5bn.

This year also saw a continuation of cross-border activity amid a more positive business environment with vaccines becoming available, Brexit's coming together and sustained low interest rates, say experts.

DEAL VOLUMES

According to PWC, the pandemic and recent geopolitical developments led most companies to the same conclusions, pushing both deal volumes and values particularly for digital and technology assets.

A key factor in getting deals done was sell-side price expectations coming down, making it easier for investors to price assets.

“The valuation gap has narrowed during the pandemic. Both realism and uncertainty have played a part in that,” said Bob Bishop, global co-chair of dla piper's corporate group.

A further catalyst for activity could come from activist investors, which are shareholders in a company agitating for change. In the first quarter, the likes of department store Kohl's Corp, French food and beverage company Danone SA and oil giant Exxon Mobil were subjects of activist campaigns.

PRIVATE ACTIVISTS

“However, as markets normalise and corporates refocus on strategic portfolio decisions, we anticipate more public engagement by activists.”

The record deal-making start to the year has been partly driven by a number of mega deals, including the sell-out of General Electric's aircraft-leasing business to AerCap for $30bn as well as Canadian Pacific's takeover of Kansas City Southern for almost $29bn.

A move by apollo global management to merge with Athene Holding, the life insurance company it created during the financial crisis, was among the largest private equity deals.

Overall, volumes of deals worth more than $5bn totaled $476bn, up 133% year on year.

SPACS SURGE

In many cases, SPACs have emerged as serious competition to private equity bidders.

“It's a different kind of competition since SPACs only want minority stakes and it's certainly a different proposition. But it makes us think that there is a wall of capital out there that is ready to be invested in either minority or majority deals,” said Patrick Frowein, co-head of EMEA investment banking coverage and advisory at Deutsche Bank.

With plentiful access to cheap debt, private equity firms jumped on the deal frenzy too, with such deals rising 115.8% to $250.6bn.

CAUTION AHEAD

Yet headwinds remain. Ongoing waves of the pandemic that continue to trigger lockdowns, high unemployment moderating demand for products and services, along with global trade tensions, regulatory pressures create uncertainties for the rest of the year, said a PwC study.

“Following a turbulent year in dealmaking, 2021 is likely to be marked by growing polarisation in asset valuations, the acceleration of deals in digital and technology, and increasing attention to environmental, social and governance (ESG) matters,” PWC said.

Source: Asia Financial Times – SPACs and Covid spark M&A frenzy not seen since the dotcom boom